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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2000
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or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission file number: 0-29400
INVESTORSBANCORP, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1854234
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
W239 N1700 Busse Road
Waukesha, Wisconsin 53188-1160
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (262) 523-1000
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of August 11, 2000, the Issuer had 1,050,000 shares of $0.01 par value common
stock issued and outstanding.
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INVESTORSBANCORP, INC.
FORM 10-QSB INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (Unaudited) and
December 31, 1999 .........................................................3
Consolidated Statements of Income - For the Three and Six Months
Ended June 30, 2000 and 1999 (Unaudited)...................................4
Consolidated Statements of Changes in Shareholders' Equity - For the
Three and Six Months Ended June 30, 2000 and 1999 (Unaudited)..............6
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 2000 and 1999 (Unaudited).........................................7
Notes to the Consolidated Financial Statements (Unaudited).................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................19
Item 2. Changes in Securities.............................................19
Item 3. Defaults Upon Senior Securities...................................19
Item 4. Submission of Matters to a Vote of Security Holders...............19
Item 5 Other Information.................................................19
Item 6. Exhibits and Reports on Form 8-K.................................19
Signatures.................................................................20
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
-------- ------------
2000 1999
---- ----
ASSETS
- ------
Cash and due from banks $ 4,065,645 $ 2,281,184
Federal funds sold 6,780,000 -
Available for sale securities 6,045,000 6,260,000
Mortgage loans held for sale 900,500 566,100
Loans, less allowance for loan losses of $966,875 and
$770,773, respectively 95,720,654 76,306,547
Furniture and equipment, net 73,839 93,478
Accrued interest receivable and other assets 1,110,428 1,001,192
------------------- ------------------
TOTAL ASSETS $ 114,696,066 $ 86,508,501
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Demand $ 8,724,541 $ 4,273,423
Savings and NOW accounts 48,092,964 42,895,527
Time 46,460,846 29,619,256
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TOTAL DEPOSITS 103,278,351 76,788,206
Federal funds purchased - 925,000
Accrued interest payable and other liabilities 896,995 1,128,395
Subordinated note payable 2,500,000 -
------------------- ------------------
TOTAL LIABILITIES 106,675,346 78,841,601
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SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, -0- shares issued and outstanding - -
Common stock, $0.01 par value; 9,000,000 shares
authorized, 1,050,000 shares issued and outstanding 10,500 10,500
Surplus 7,316,900 7,316,900
Retained earnings 693,320 339,500
------------------- ------------------
TOTAL SHAREHOLDERS' EQUITY 8,020,720 7,666,900
------------------- ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 114,696,066 $ 86,508,501
=================== ==================
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 30,
-------- ---------
2000 1999 2000 1999
---- ---- ---- ----
INTEREST INCOME:
Interest and fees on loans $1,990,430 $1,102,358 $3,664,793 $2,050,814
Interest on investment securities 61,952 101,314 133,877 295,062
Interest on federal funds sold 16,872 17,707 28,979 48,901
--------------- --------------- --------------- ---------------
TOTAL INTEREST INCOME 2,069,254 1,221,379 3,827,649 2,394,777
INTEREST EXPENSE:
Interest on deposits 1,222,823 686,467 2,252,990 1,357,735
Interest on federal funds purchased 36,327 151 42,549 151
--------------- --------------- --------------- ---------------
TOTAL INTEREST EXPENSE 1,259,150 686,618 2,295,539 1,357,886
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES 810,104 534,761 1,532,110 1,036,891
Provision for loan losses 155,947 84,872 196,102 192,641
--------------- --------------- --------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 654,157 449,889 1,336,008 844,250
--------------- --------------- --------------- ---------------
NONINTEREST INCOME:
Service charges on deposit accounts 17,383 7,974 29,947 14,952
Service release premiums 119,092 170,971 209,829 362,674
Management service fees 253,491 220,474 491,198 433,885
Other income 13,050 6,356 26,004 38,376
--------------- --------------- --------------- ---------------
TOTAL NONINTEREST INCOME 403,016 405,775 756,978 849,887
--------------- --------------- --------------- ---------------
NONINTEREST EXPENSE:
Salaries and employee benefits 589,743 529,034 1,172,282 998,117
Occupancy expenses 22,771 22,591 45,410 44,131
Equipment expenses 16,787 15,886 34,647 28,957
Other expenses 146,077 120,425 279,450 244,993
--------------- --------------- --------------- ---------------
TOTAL NONINTEREST EXPENSE 775,378 687,936 1,531,789 1,316,198
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 281,795 167,728 561,197 377,939
Income tax expense 103,838 64,242 207,377 144,492
--------------- --------------- --------------- ---------------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 177,957 103,486 353,820 233,447
--------------- --------------- --------------- ---------------
Cumulative effect of expensing start-up costs
as incurred, net of income taxes - - - 111,713
--------------- --------------- --------------- ---------------
NET INCOME $ 177,957 $ 103,486 $ 353,820 $ 121,734
=============== =============== =============== ===============
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30, JUNE 30,
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2000 1999 2000 1999
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PER SHARE AMOUNTS:
BASIC EARNINGS PER SHARE:
Income before cumulative effect of a change in
accounting principle $ 0.17 $ 0.10 $ 0.34 $ 0.23
Cumulative effect of expensing start-up
costs as incurred - - - (0.11)
-------------- -------------- -------------- --------------
Net income $ 0.17 $ 0.10 $ 0.34 $ 0.12
============== ============== ============== ==============
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of a change in
accounting principle $ 0.17 $ 0.10 $ 0.34 $ 0.22
Cumulative effect of expensing start-up
costs as incurred - - - (0.11)
-------------- -------------- -------------- --------------
Net income $ 0.17 $ 0.10 $ 0.34 $ 0.11
============== ============== ============== ==============
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
RETAINED TOTAL
COMMON EARNINGS SHAREHOLDERS'
STOCK SURPLUS (DEFICIT) EQUITY
----- ------- --------- ------
BALANCE, December 31, 1998 $ 10,000 $ 6,979,900 $ 194,341 $ 7,184,241
Net income for first six months of 1999 - - 121,734 121,734
-------- ----------- --------- -----------
BALANCE, March 31, 1999 $ 10,000 $ 6,979,900 $ 316,075 $ 7,305,975
======== =========== ========= ===========
BALANCE, December 31, 1999 $ 10,500 $ 7,316,900 $ 339,500 $ 7,666,900
Net income for first six months of 2000 - - 353,820 353,820
-------- ----------- --------- -----------
BALANCE, March 31, 2000 $ 10,500 $ 7,316,900 $ 693,320 $ 8,020,720
======== =========== ========= ===========
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
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JUNE 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 353,820 $ 121,734
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation 20,805 20,304
Provision for loan loss 196,102 192,641
Benefit for deferred taxes - (53,100)
Net (increase) decrease in mortgage loans held for sale (334,400) 1,540,307
(Increase) decrease in assets:
Interest receivable (123,642) (20,132)
Other assets 14,406 350,195
Increase (decrease) in liabilities:
Accrued interest 225,661 (191,670)
Taxes payable (420,404) (43,070)
Other liabilities (36,657) (137,552)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (104,309) 1,779,657
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold (6,780,000) 470,000
Net decrease in federal funds purchased (925,000) -
Proceeds from sales of available for sale securities 7,985,000 10,775,000
Purchase of available for sale securities (7,770,000) (3,195,000)
Proceeds from maturity of held to maturity securities - 3,980,493
Purchase of furniture and equipment (1,166) (6,118)
Net increase in loans (19,610,209) (19,826,514)
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NET CASH USED IN INVESTING ACTIVITIES (27,101,375) (7,802,139)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 26,490,145 6,947,722
Proceeds from subordinated debt 2,500,000 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 28,990,145 6,947,722
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Net increase in cash and due from banks 1,784,461 925,240
Cash and due from banks, beginning of period 2,281,184 1,049,145
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CASH AND DUE FROM BANKS, END OF PERIOD $ 4,065,645 $ 1,974,385
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,069,878 $ 1,549,556
============= =============
Income taxes $ 627,781 $ 60,000
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INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 1. ORGANIZATION
InvestorsBancorp, Inc. (the "Company") was incorporated under Wisconsin law on
June 12, 1996, to be the holding company of InvestorsBank, a Wisconsin state
bank located in Pewaukee, Wisconsin (the "Bank"). The Bank commenced business on
September 8, 1997.
NOTE 2. ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management of the Company, all adjustments
necessary to present fairly the financial position as of June 30, 2000 and
December 31, 1999 and the results of operations and cash flows for the three
months and six months ended June 30, 2000 and 1999 have been made. Such
adjustments consisted only of normal recurring items. Operating results for the
periods ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The accounting policies followed by the Company are set forth in Note 1
to the Company's consolidated financial statements contained in the Company's
1999 Annual Report on Form 10-KSB. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
Principles of Consolidation - The consolidated financial statements as of and
for the period presented include the accounts of the Company and the Bank, its
wholly owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
NOTE 3. SUBORDINATED NOTE PAYABLE
On April 28, 2000, the Company borrowed $2.5 million from Bando McGlocklin
Capital Corporation pursuant to an unsecured note which bears interest at a
fixed rate of 11% per year through its maturity. Interest is payable quarterly
with the principal amount of the note due on April 30, 2010.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides additional analysis of the financial
statements and should be read in conjunction with that information. The
discussion focuses on significant factors that affected the Company's earnings
for the periods ended June 30, 2000 and 1999. As of June 30, 2000 and 1999, the
Bank was the only subsidiary of the Company and its operations contributed all
of the revenue and expenses.
Results of Operations
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
During the quarter ended June 30, 2000, the Company reported net income of
$178,000, or $0.17 per diluted share, as compared to net income of $103,000, or
$0.10 per diluted share for the quarter ended June 30, 1999, a 73% increase.
This enhanced profitability was primarily attributable to a 41% increase in
average earning assets.
Net Interest Income
Net interest income is the difference between interest income, including fees on
loans, and interest expense, and is the largest contributing factor to net
income for the Company. Total net interest income increased 51% to $810,000 for
the quarter ended June 30, 2000 from $535,000 for the quarter ended June 30,
1999. The net interest margin for second quarter 2000 was 3.09% compared to
3.28% for second quarter 1999. Significantly higher loan volumes and an increase
in interest rates resulted in an 81% increase in interest and fee income on
loans which totaled $1.99 million for the three months ended June 30, 2000
compared to $1.10 for the three months ended June 30, 1999. The average prime
rate was 9.25% for second quarter 2000 compared to 7.75% for second quarter
1999. Approximately 55% of loans are repriced using the prime rate. The majority
of interest income on loans was derived from the commercial and commercial real
estate loan portfolios which, in the aggregate, comprised approximately 73% of
total loans at June 30, 2000. Interest earned on investment securities and
federal funds sold totaling $62,000 and $17,000, respectively, were the other
components of interest income. While the direction of future interest rates,
competition, and other factors may have a significant impact, management
anticipates interest income will continue to increase proportionately with the
growth of the loan portfolio and other investments.
Interest expense similarly increased 83% to $1.26 million for the quarter ended
June 30, 2000 from $687,000 for the quarter ended June 30, 1999. Interest
expense consisted predominantly of interest paid on money market accounts
totaling $591,000 and certificates of deposit totaling $563,000 for the quarter
ended June 30, 2000. The average yield on money market accounts increased to
6.04% during second quarter 2000, while the average yield on certificates of
deposits increased to 6.33%. The average yield on money market accounts and
certificates of deposits were 4.75% and 5.54%, respectively, during second
quarter 1999. Interest expense is anticipated to continue to rise in the future
as management expects these deposit instruments will remain the primary funding
sources utilized by the Company to fund additional growth.
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Provision for Loan Losses
The allowance for loan losses increased 25% to $967,000 as of June 30, 2000 from
$771,000 as of December 31, 1999. The allowance for loan losses is established
through a provision for loan losses charged to expense. A loan loss provision of
$156,000 was expensed in the quarter ended June 30, 2000 as compared to $85,000
during the three months ended June 30, 1999. The allowance for loan losses
remained at approximately 1.0% of total loans, net of residential mortgage loans
held for sale on the secondary market.
Loans are charged against the allowance for loan losses when management believes
that the collectibility of the principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses on existing
loans that may become uncollectible, based on evaluation of the collectibility
of loans and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrower's ability to pay. While management uses
the best information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. A loan is impaired when it
is probable the creditor will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement.
There were no loan charge-offs or recoveries, nor any impaired loans during 1999
or the first six months of 2000. While a comprehensive analysis of the allowance
for loan losses is somewhat difficult due to the Company's relatively short
operating history, management believes that the allowance was at an adequate
level at June 30, 2000 based on the composition of the portfolio as well as
regulatory guidelines.
Non-Interest Income and Expenses
Non-interest income for the quarter ended June 30, 2000 totaled $403,000 as
compared to $406,000 for the quarter ended June 30, 1999, a 1% decrease. Service
release fees decreased to $119,000 for the quarter ended June 30, 2000 compared
to $171,000 for the quarter ended June 30, 1999. Service release fees are from
the sale of residential mortgages sold in the secondary market. Due to rising
long-term interest rates, there were fewer individuals refinancing their current
mortgages during second quarter 2000 as compared to second quarter of 1999.
Management service fees increased to $253,000 for the quarter ended June 30,
2000 compared to $220,000 for the quarter ended June 30, 1999. The Company
charges Bando McGlocklin Capital Corporation (BMCC), the former principal
shareholder of the Company, a management fee for salaries and employee benefits
of common management, as well as a loan servicing fee based on total loans and
leases under management. As of June 30, 2000, the Company had BMCC loans under
management totaling $114 million and leased properties of $34.4 million. Service
charges and other income were $30,000 compared to $14,000 for the same periods.
Non-interest expense increased 13% to $775,000 for the three months ended June
30, 2000 as compared to $688,000 for the three months ended June 30, 1999. The
increase was primarily
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due to salaries and employee benefits expense increasing $61,000 due to regular
compensation increases and incentive compensation. Salaries and employee
benefits totaled $590,000 and $529,000 for the three months ended June 30, 2000
and 1999, respectively. These amounts include salaries that were reimbursed
through the management service fee noted above. The other operating expenses,
which included occupancy and fixed asset expense, data processing fees,
advertising, investor communications, and professional fees, increased $26,000.
Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts currently
payable under tax laws. Deferred income tax assets and liabilities are computed
quarterly for differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The differences are related principally to tax
exempt interest income, allowance for loan losses, and depreciation that will be
used to offset future net operating income.
For the quarter ended June 30, 2000, the Company recorded federal and state
income tax expense of $104,000. The Company also has a deferred tax asset of
$294,000. For the quarter ended June 30, 1999, the Company recorded a federal
and state income tax expense of $64,000 and had a deferred tax asset of
$147,000. Management believes it is more likely than not that the deferred tax
asset will be fully realized. The effective rate for the expense for income
taxes for the quarter ended June 30, 2000 was 37%.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
During the six months ended June 30, 2000, the Company reported net income of
$354,000, or $0.34 per diluted share, as compared to net income of $122,000, or
$0.11 per diluted share for the six months ended June 30, 1999. Net income for
the six months ended June 30, 1999 was reduced by the cumulative effect of a
change in accounting principle that totaled $112,000 after income taxes. Income
before the cumulative effect of a change in accounting increased 51%. This
enhanced profitability was primarily attributable to a 36% increase in average
earning assets.
Net Interest Income
Net interest income is the difference between interest income, including fees on
loans, and interest expense, and is the largest contributing factor to net
income for the Company. Total net interest income increased 47% to $1.53 million
for the six months ended June 30, 2000 from $1.04 million for the six months
ended June 30, 1999. The net interest margin for the first half of 2000 was
3.20% compared to 3.09% for the first half of 1999. Significantly higher loan
volumes and an increase in interest rates resulted in a 79% increase in interest
and fee income on loans which totaled $3.66 million for the six months ended
June 30, 2000 compared to $2.05 million for the six months ended June 30, 1999.
The average prime rate was 8.97% for the first half of 2000 compared to 7.75%
for the first half of 1999. Approximately 55% of loans are repriced using the
prime rate. The majority of interest income on loans was derived from the
commercial
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and commercial real estate loan portfolios which, in the aggregate, comprised
approximately 73% of total loans at June 30, 2000. Interest earned on investment
securities and federal funds sold totaling $134,000 and $29,000, respectively,
were the other components of interest income. While the direction of future
interest rates, competition, and other factors may have a significant impact,
management anticipates interest income will continue to increase proportionately
with the growth of the loan portfolio and other investments.
Interest expense similarly increased 69% to $2.30 million for the six months
ended June 30, 2000 from $1.36 million for the six months ended June 30, 1999.
Interest expense consisted predominantly of interest paid on money market
accounts totaling $1.13 million and certificates of deposit totaling $1.03
million for the six months ended June 30, 2000. The average yield on money
market accounts increased to 5.84% during the first half of 2000, while the
average yield on certificates of deposits increased to 6.18%. The average yield
on money market accounts and certificates of deposits were 4.81% and 5.61%,
respectively, during the first half of 1999. Interest expense is anticipated to
continue to rise in the near future as management expects these deposit
instruments will remain the primary funding sources utilized by the Company to
fund additional growth.
Provision for Loan Losses
A loan loss provision of $196,000 was expensed during the six months ended June
30, 2000 as compared to $193,000 during the first six months of 1999. There were
no loan charge-offs or recoveries nor any impaired loans for the six months
ended June 30, 2000 and 1999.
Non-Interest Income and Expenses
Non-interest income for the six months ended June 30, 2000 totaled $757,000 as
compared to $850,000 for the six months ended June 30, 1999, an 11% decrease.
The majority of the decrease was the result of service release fees decreasing
to $210,000 for the six months ended June 30, 2000 compared to $363,000 for the
six months ended June 30, 1999. Service release fees are from the sale of
residential mortgages sold in the secondary market. Due to rising long-term
interest rates, there were fewer individuals refinancing their current mortgages
during the first half of 2000 as compared to the first half of 1999. Management
service fees totaled $491,000 for the six months ended June 30, 2000 compared to
$434,000 for the six months ended June 30, 1999. The Company charges Bando
McGlocklin Capital Corporation (BMCC), the former principal shareholder of the
Company, a management fee for salaries and employee benefits of common
management, as well as a loan servicing fee based on total loans and leases
under management. As of June 30, 2000, the Company had BMCC loans under
management totaling $114 million and leased properties of $34.4 million. Service
charges and other income were $56,000 compared to $53,000 for the same periods.
Non-interest expense increased 16% to $1.53 million for the six months ended
June 30, 2000 as compared to $1.32 million for the six months ended June 30,
1999. The increase was primarily due to salaries and employee benefits expense
increasing $174,000 due to regular compensation increases and incentive
compensation. Salaries and employee benefits totaled $1.17 million and $998,000
for the six months ended June 30, 2000 and 1999, respectively. These amounts
include salaries that were reimbursed through the management service fee noted
above. The other
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operating expenses, which included occupancy and fixed asset expense, data
processing fees, advertising, investor communications, and professional fees,
increased $41,000.
For the six months ended June 30, 2000, the Company recorded federal and state
income tax expense of $207,000. The Company also has a deferred tax asset of
$294,000. For the six months ended June 30, 1999, the Company recorded a federal
and state income tax expense of $144,000 and had a deferred tax asset of
$147,000. Management believes it is more likely than not that the deferred tax
asset will be fully realized. The effective rate for the expense for income
taxes for the quarter ended June 30, 2000 was 37%.
FINANCIAL CONDITION
Assets
The Company reported total assets of $114.70 million as of June 30, 2000 versus
$86.51 million as of December 31, 1999, a 33% increase. Cash and due from banks
increased to $4.07 million as of June 30, 2000 from $2.28 million at December
31, 1999. Federal funds sold increased to $6.78 million at June 30, 2000. The
Company's investment securities portfolio decreased to $6.05 million as of June
30, 2000 from $6.26 million at year end. As of June 30, 2000, investment
securities consisted of taxable variable rate demand notes secured by
irrevocable letters of credit from federally insured, domestic financial
institutions. Although the notes have a long term maturity structure, the
interest rate is adjustable weekly and the holder has the option to liquidate
the security at 100% of par value within seven days upon proper notice. These
instruments provide the Company with ready liquidity to provide for loan funding
requirements. Management believes that the investment portfolio is adequately
diversified.
Loans continued to grow during the quarter. As of June 30, 2000, loans rose 25%
to $96.69 million compared to $77.08 million as of December 31, 1999. While most
of the growth occurred in the commercial, industrial and commercial real estate
segments of the loan portfolio, residential real estate loans, including home
equity credit facilities, also grew considerably. It is management's goal to
continue to aggressively grow the loan portfolio with quality credits. For the
funding source of this loan growth, the Company does not rely solely on its
liquid assets, such as investments. The Company has access to various
off-balance sheet sources. As of June 30, 2000, the Company had $901,000 of
residential mortgage loans held for sale. As of December 31, 1999, residential
mortgage loans originated for sale on the secondary market totaled $566,000.
Excluding the mortgage loans originated for sale, the allowance for loan losses
remained at approximately 1.0% of gross loans, totaling $967,000 at June 30,
2000 and $771,000 at year end 1999. In addition to loans outstanding, the
Company had unfunded loan commitments totaling $21.13 million as of June 30,
2000, net of participations sold. Loan demand continues to remain strong for
both commercial and residential loans in the Company's trade area. Despite the
recent increase in residential loan rates, the Company has continued to increase
its volume of residential loans and to grow its market share through new
referral sources.
Other assets at June 30, 2000 totaled $1.18 million compared to $1.09 million at
December 31, 1999. Other assets at June 30, 2000 included net furniture and
equipment of $74,000, accrued
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interest receivable on loans and investments of $609,000, excess servicing
assets of $118,000 relating to loans sold to a third party, deferred tax assets
of $294,000 and other miscellaneous assets of $90,000.
Liabilities
Total deposits increased 35% to $103.28 million at June 30, 2000 from $76.79
million as of year end 1999. Indexed money market accounts comprised the largest
portion of the deposit base totaling $46.53 million as of June 30, 2000 compared
to $41.46 million as of December 31, 1999. Time certificates of deposit
increased to $46.46 million compared to $29.62 million as of year end. Time
deposits included retail brokered deposits with maturities ranging from 1 to 7.5
years of $12.50 million and $9.62 million as of June 30, 2000 and December 31,
1999, respectively. In order for the Company to facilitate continued loan
growth, management expects to continue to aggressively market and competitively
price its money market and certificate of deposit products. Other deposits
outstanding as of June 30, 2000 included non-interest bearing accounts totaling
$8.76 million and interest bearing checking accounts (NOW accounts) of $1.53
million.
Other liabilities increased to $3.40 million as of June 30, 2000 from $2.05
million at December 31, 1999. Subordinated debt increased by $2.50 million and
federal funds purchased decreased $925,000 from year end. On April 28, 2000, the
Company borrowed $2.50 million from Bando McGlocklin Capital Corporation
pursuant to an unsecured note which bears interest at a fixed rate of 11% per
year through its maturity. Other liabilities as of June 30, 2000 consisted
primarily of accrued interest payable totaling $716,000, as well as accrued
expenses payable of $20,000, retained loan discount relating to loans sold to a
third party totaling $104,000, and other miscellaneous liabilities of $57,000.
CAPITAL RESOURCES
Capital ratios applicable to the Bank and the Company at June 30, 2000 and
December 31, 1999 were as follows:
Total Tier I
Risk-based Risk-based Leverage
Capital Capital Ratio
--------------- --------------- ---------------
Regulatory Capital Requirements:
Minimum 8.0% 4.0% 4.0%
Well-capitalized 10.0% 6.0% 5.0%
At June 30, 2000
Bank 11.8% 10.8% 10.8%
Company 12.0% 8.4% 8.4%
At December 31, 1999
Bank 11.1% 10.0% 9.4%
Company 11.1% 10.0% 9.4%
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Management intends to maintain capital levels well in excess of minimums
established by the regulatory authorities. The Bank has committed to the FDIC
that the ratio of Tier I capital to total assets will not be less than 8% for
the first three years of operations commencing September 8, 1997.
The application for a bank charter and for federal deposit insurance stated that
the Bank would retain its earnings during the first three years of operation. As
such, no dividends will be paid by the Company to the shareholders during that
period. The Company expects that all earnings will be retained to finance the
growth of the Company and the Bank and that no cash dividends will be paid for
the foreseeable future.
Liquidity
The liquidity of a financial institution reflects its ability to provide funds
to meet loan requests, accommodate possible deposit withdrawals, and take
advantage of interest rate market opportunities in a cost effective manner.
Although primary sources of funds are deposits and repayment of loan principal,
the Company maintains a significant level of liquid assets to provide for
potential funding needs. In addition to cash balances and federal funds sold as
of June 30, 2000, the Company held $6.05 million of marketable securities and
$900,000 of residential mortgage loans originated and intended for sale in the
secondary market. Should an immediate need for funds arise, these assets may be
readily liquidated with nominal risk of principal loss.
Additionally, the Company has access to various alternative sources of funds
including the purchase of federal funds from correspondent banks, the sale of
commercial loans, and the acquisition of brokered deposits. Currently, the
Company has correspondent banking relationships with four institutions which
collectively have approved federal funds lines for the Bank totaling $7.50
million. The Company also has the ability to sell loan participations to
correspondents, affiliates and other financial institutions. Further, the
Company has the ability to acquire funds via the brokered certificate of deposit
market. Management has periodically purchased certificates of deposit through
approved brokers as market conditions dictate to fill funding gaps. Finally, the
Bank had a $2 million revolving line of credit with one of its correspondent
banks that matured on June 30, 2000. The Bank has applied to the Federal Reserve
Bank of Chicago to borrow funds from the Discount Window on a secured basis.
This would allow the Bank to borrow up to $10 million on a short-term basis in
the event of an unexpected liquidity shortfall. The actual amount the Bank would
be able to borrow would depend on total capital and on the amount of assets the
Bank would pledge. At this time, the Bank's application is still being processed
by the Federal Reserve. Management believes that current liquidity levels are
sufficient to meet anticipated loan demand, as well as to absorb deposit
withdrawals.
Asset/Liability Management
The primary function of asset/liability management is to identify, measure and
control the extent to which changes in interest rates, commodity prices or
equity prices adversely affect a financial
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institution's earnings or economic capital. The Company's strategy is to
optimize and stabilize net income across a wide range of interest rate cycles
while maintaining adequate liquidity and conforming to all applicable capital
and other regulatory requirements.
Changes in net interest income, other than volume related changes, arise when
interest rates on assets reprice in a time frame or interest rate environment
that is different from the repricing period for liabilities. Changes in net
interest income also arise from changes in the mix of interest earning assets
and interest bearing liabilities.
In the normal course of business, the Company engages in off-balance sheet
activity to hedge interest rate risk. As of June 30, 2000, the Company had three
interest rate swap agreements outstanding with a notional value totaling $11.9
million structured as a hedge of specific fixed-rate deposits whose terms
coincide with the terms of the swap agreement. The swap agreements are
structured so that the Company receives a fixed interest rate and pays a
variable rate. The variable rate on one swap agreement is based on the federal
funds rate and the other two agreements are based upon LIBOR. These instruments
allow management to more closely balance the repricing opportunities of the
Company's assets and liabilities, and thereby, reduce potential interest rate
risk exposure. Although swaps reduce interest rate risk, the potential for
profit or loss on interest rate swaps still exists depending upon fluctuations
in interest rates.
The Company does not expect to experience any significant fluctuations in its
net interest income as a consequence of changes in interest rates.
Unlike most industries, virtually all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance and results of operations than
the effect of general levels of inflation. Interest rates do not necessarily
move in the same direction or magnitude as the prices of goods and services as
measured by the Consumer Price Index. As discussed previously, the Company's
interest rate gap position in conjunction with the direction of the movement in
interest rates is an important factor in the Company's operating results.
RECENT REGULATORY DEVELOPMENTS
The Gramm-Leach-Bliley Act (the "Act"), which was enacted in November, 1999,
allows eligible bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. Under the Act, an eligible bank holding company that elects to
become a financial holding company may engage in any activity that the Board of
Governors of the Federal Reserve System (the "Federal Reserve"), in consultation
with the Secretary of the Treasury, determines by regulation or order is
financial in nature, incidental to any such financial activity, or complementary
to any such financial activity and does not pose a substantial risk to the
safety or soundness of depository institutions or the financial system
generally. National banks are also authorized by the Act to engage, through
"financial subsidiaries," in certain activity that is permissible for financial
holding companies (as described above) and certain activity that the Secretary
of the Treasury, in consultation with the Federal Reserve, determines is
financial in nature or incidental to any such financial activity.
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Various bank regulatory agencies have begun issuing regulations as mandated by
the Act. During June, 2000, all of the federal bank regulatory agencies jointly
issued regulations implementing the privacy provisions of the Act. In addition,
the Federal Reserve issued interim regulations establishing procedures for bank
holding companies to elect to become financial holding companies and listing the
financial activities permissible for financial holding companies, as well as
describing the extent to which financial holding companies may engage in
securities and merchant banking activities. The Federal Deposit Insurance
Corporation issued an interim regulation regarding the parameters under which
state nonmember banks may conduct activities through subsidiaries that national
banks may conduct only in financial subsidiaries. At this time, it is not
possible to predict the impact the Act and its implementing regulations may have
on the Company or the Bank. As of the date of this filing, the Company has not
applied for or received approval to operate as a financial holding company. In
addition, the Bank has not applied for or received approval to establish any
financial subsidiaries.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act. The Company intends such forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the
Private Securities Reform Act of 1995, and is including this statement for
purposes of these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by the use of the words
"believe", "expect", "intend", "anticipate", "estimate", "project" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse affect on the operations and future prospects of the Company
and the subsidiaries include, but are not limited to, changes in interest rates,
general economic conditions guidelines, including the condition of the local
real estate market, legislative/regulatory changes, monetary and fiscal policies
of the U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board, the quality or composition of the loan or investment portfolios,
demand for loan products, deposit flows, competition, demand for financial
services in the Company's market area, our implementation of new technologies,
our ability to develop and maintain secure and reliable electronic systems and
accounting principles and policies. These risks and uncertainties should be
considered in evaluating forward-looking statement and undue reliance should not
be placed on such statements.
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DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
AVERAGE BALANCE SHEETS
FOR SIX MONTHS ENDED FOR YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
Cash and due from banks $ 2,171,298 $ 1,413,255
Federal funds sold 1,013,407 1,786,216
Available for sale securities 4,235,027 8,442,054
Mortgage loans held for sale 399,156 878,445
Loans:
Commercial 16,650,265 22,441,159
Commercial Real Estate 48,306,832 25,819,397
Residential Real Estate 17,751,474 10,943,122
Installment and consumer 329,793 201,803
------------------ ----------------
Total loans 83,038,364 59,405,481
Less allowance for loan losses (815,083) (578,171)
------------------ ----------------
Net loans 82,223,281 58,827,310
Furniture and equipment, net 85,078 112,345
Accrued interest receivable and other assets 930,147 704,389
------------------ ----------------
Total assets $ 91,057,394 $ 72,164,014
================== ================
Demand deposits $ 6,046,273 $ 3,943,584
Interest bearing deposits
NOW 1,437,807 1,308,114
Money market 38,980,146 41,094,253
Time deposits 33,672,023 17,646,743
------------------ ----------------
Total deposits 80,136,249 63,992,694
Federal funds purchased 1,300,192 165,636
Accrued interest payable and other liabilities 884,512 690,363
Subordinated note payable 879,121 -
------------------ ----------------
Total liabilities 83,200,074 64,848,693
Equity capital 7,857,320 7,315,321
------------------ ----------------
Total liabilities and capital $ 91,057,394 $ 72,164,014
================== ================
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There is no material pending legal proceedings to which the
Company or its subsidiary is a party.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 25, 2000, the annual meeting of shareholders was held.
At the meeting, Donald E. Sydow was elected to serve as a
Class III director a term expiring in 2003. Continuing as
Class I directors (term expires in 2001) are George R.
Schonath and Jon McGlocklin. Continuing as a Class II
directors (term expires in 2002) are Salvatore L. Bando and
Terry L. Mather. The shareholders ratified the appointment of
Virchow, Krause & Company LLP as the Company's independent
public accountants for the year ending December 31, 2000.
There were 1,050,000 issued and outstanding shares of common
stock outstanding at the time of the annual meeting. The
voting on each item presented at the annual meeting was as
follows:
For Withheld
--- --------
Election of Director
Donald E. Sydow 938,050 5,526
For Not For Abstain Total
--- ------- ------- -----
Ratification of Accountants 937,190 3,316 3,070 943,576
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
10 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended June 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
INVESTORSBANCORP, INC.
(Registrant)
Date: August 11, 2000 /s/ George R. Schonath
----------------------
George R. Schonath
Chief Executive Officer
Date: August 11, 2000 /s/ Susan J. Hauke
------------------
Susan J. Hauke
Vice President Finance and
Chief Accounting Officer
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